Are job cuts at Snapdeal a precursor to its merger with Alibaba and Paytm?

Kunal Bahl, co- Founder of Snapdeal addresses the media. Rumours also have it that Alibaba, the anchor investors in a $500-million fund-raising in August 2015, is in talks with its other investee company Paytm and Snapdeal to form a large e-commerce firm.(Hindustan Times)

If Snapdeal follows the rule of the game, the company would deny any kind of merger talks with rival Paytm, or with investor Alibaba, unless a deal is concluded, at least verbally.

But according to an industry source close to the company, the job cuts at the e-commerce firm, as well as the 100% pay cuts announced by founders Kunal Bahl and Rohit Bansal may just be a precursor to it. “That’s the logical step forward,” the source added. After all, nobody wants to remain a distant third (especially, considering Amazon and Flipkart are way ahead).

The company, meanwhile, chose to stay tight lipped, but Bansal and Bahl’s letter to Snapdeal employees on Wednesday were enough to add fuel to the fire.

“Did we make errors in our execution? No doubt about that,” Bahl wrote in the letter. He went on to say that Snapdeal grew the business without figuring out the right “economic model”, and diversified before without “perfecting the first or made it profitable”, and started expanding beyond what was needed.

So, while the company raised a lot of capital ($1.56 billion), it lost focus. “We feel that happened to us. We started doing too many things, and all of us starting with myself and Rohit, are to blame for it,” Bahl wrote.

From a close challenger to Flipkart, Snapdeal has become a distant number three. What’s worse, the e-tailer is under immense pressure of reduce losses (which has only increased over the years), and keep its market share intact, which also has been fast dwindling.

Rumours also have it that Alibaba, the anchor investors in a $500-million fund-raising in August 2015, is in talks with its other investee company Paytm and Snapdeal to form a large e-commerce firm. That would mean a financial clean up at Snapdeal.

Meanwhile, Paytm has separated its marketplace business from its payments bank and wallet business, which has been spun off into a different entity. Alibaba is likely to invest about R1,700 crore into the Paytm-Alibaba merged entity to build the e-commerce business.

Paytm refused to comment on any merger talks with Alibaba.

But according to industry experts, a three-way merger is the best way forward. “It will offer a new lease of life to everybody involved in the business… In theory it sounds great. But a lot will depend on the structure, who will control and who will hold what stake,” said Sanchit Vir Gogia, CEO and chief analyst of Greyhound Research

People who know Bahl praise him for his business acumen, and said he will take steps to safeguard investor and shareholder interest. “Kunal (Bahl) is very smart, and he is doing what should be done with the lack of funding available. He has taken a call to make the company profitable. Theoretically it makes sense, but in real life that is not so easy,” said Subramanya SV, co-founder of Fisdom, and former partner of Bessemer Venture Partners (a Snapdeal investor).

If at all a merger takes place, both Amazon and Flipkart will have a more powerful and bigger rival to fight.